Belgium: Keep up reforms to increase employment and productivity growth

Belgium’s tax, labour, pension and education reforms have improved the potential for stronger, sustainable and inclusive growth over the long term. Keeping up this momentum on structural reforms is key to energise the economy and keep it resilient to external risks and uncertainties, according to a new OECD report.

The latest OECD Economic Survey of Belgium notes that robust job creation, albeit mostly in low-wage industries, has led to the unemployment rate falling to a historic low. Economic growth has been steady, but remains below average euro area levels, and productivity growth has stagnated. Future reforms should seek to lower employment barriers to disadvantaged groups, help innovative businesses to thrive, and further ease pressures on public finances.

“Belgium has achieved steady economic growth and good levels of well-being, owing notably to past reforms,” said OECD Secretary-General Angel Gurría, presenting the Survey in Brussels alongside Prime Minister Sophie Wilmès. “Boosting Belgium’s growth will require maintaining the pace of structural reforms, while continuing with fiscal consolidation and close monitoring of the financial sector should enhance economic resilience to risks.”

Despite recent increases, Belgium’s 65% employment rate remains below the OECD average of 69%, and long-term joblessness is high, with 49% of unemployed out of work over a year. Further easing labour taxes on low earners could help less skilled, migrant and older workers into employment. Improving lifelong learning is essential to align skills with labour market needs. Switching from flat to means-tested unemployment benefits and introducing in-work benefits for low-wage workers could increase incentives to return to work.

The Survey notes Belgium’s progress in adapting social and tax policies to reflect the rise in non-standard employment, like platform jobs. It recommends building on this by harmonising contribution rates and pension calculations between employees and the self-employed.

To address the slowdown in productivity growth to 0.4% from above 2% in the 1990s, the Survey suggests better targeting public R&D support to innovative start-ups and enabling more competition in professional and retail services by lightening regulations. Better judicial efficiency would help, as would improving transport infrastructure and reducing congestion, for example by introducing congestion charges and removing tax incentives on company cars.

Lowering the public debt should continue to be prioritized. Public spending reviews can be a way to identify inefficiencies, creating room to raise public investment while respecting fiscal targets. Taxation should be rebalanced away from labour, where it penalises growth and employment, in favour of environmental taxes and a broader VAT tax base. With risks building up in the financial sector, lending standards should stay high.

The Survey – noting Belgium is among the EU countries likely to feel the most impact from Brexit – projects Belgian GDP growth easing slightly to 1.1% in 2020 and 2021.